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Thursday, May 6, 2010

TastingRoom.com and its Implications

TastingRoom's announcement of its online wine marketplace represents an evolution of the application of its technology as well as an evolution of its business model. In this post we will track the trajectory of the business model evolution as well as highlight its implications for market participants.

In December of 2009, TastingRoom, Inc., announced the introduction of a technology, which it called T.A.S.T.E. (Total Anerobic Sample Transfer Environment), which allows the transfer of wines from 750 ml bottles to smaller 50 ml "sample" bottles without compromising the integrity of the wine. In April of 2010, TastingRoom announced deals with wineries such as Trefethen, Chateau Montelena, and Grgich Hills Estates whereby those companies would utilize the TastingRoom technology to reach out to the trade and their club members. On May 3, 2010, TastingRoom announced TastingRoom.com, an online marketplace where consumers can buy sample bottles of wine from participating wineries and have those bottles delivered directly to their homes.

Source: TastingRoom.com

The concept behind the marketplace is that the consumer can taste the wine in this reduced-size form factor as an aid in making decisions regarding purchsing full-sized bottles. The program is currently only available in California but will be rolled out to other states in the future.

At first glance this looks like a glorious opportunity for the consumer as the winery's tasting room is deposited at the front door and the pour is larger than available at the winery, but at the same price. The consumer can eveluate the wine in the privacy of the home and make "no-pressure" buying decisions. Once a decision is made, the consumer can either go back to TastingRoom.com to make the full-size purchase or can go to their neighborhood retailer or other favored channel. In addition to using this approach as a buying decision, a consumer can use a winery flight pack as a vehicle for flight-themed wine dinners. The only downside for the consumer would be reliability of access on a year-round basis. For example, living in Florida, there is a narrow window during the course of the year when we can receive shipments from a winery. One option is to do next-day air during hot weather but the wine still has some exposure and this approach adds to the procurement cost.

The wineries who sign on to the program run the risk of alienating some existing channels but the approach provides another avenue for getting their wines into the hands of consumers; in this case, an internet-savvy customer.There are two opportunities for increased sales here: the sample pack and, if the wine does its job, the follow-on sale of larger-format bottles.

TastingRoom.com will be viewed with suspicion by the neighborhood retailer. In the first place, it keeps the customer in the home and, as such, reduces impulse buying, a key source of revenue for the retailer. Second, the retailer has the same problem that the winery had before the advent of TastingRoom.com. That is, the retailer might be willing to give out samples as an aid in a purchase decision, but you have to be in the store to get that sample. Third, this is competition for the retailer.

TastingRoom.com is an innovative and relatively inexpensive approach to gaing access to a wine prior to making a purchase decision or as a means of having flight-themed diners. The key things to look at going forward are (i) how many, and what quality, of wineries jump on the bandwagon, (ii) how broadly it is rolled out around the country, and (iii) how they address the year-round shipping problem.